Abstract:This paper extends the conjectural approach in industrial organisation to the analysis of imperfections in output and factor markets. Starting from the specification of a production function, the econometric analysis is based on the formulation and estimation of a simultaneous‐equation model consisting of a production function, first‐order conditions associated with factor employment, and two conjectural elasticities to parameterise the industry's oligopoly and oligopsony equilibria. As an example, we provide … Show more
“…19 NIEO models have been applied to both monopoly and monopsony (Azzam and Pagoulatos 1990;Azzam and Schroeter 1991a;Durham, et al 1992;Just, et al 1980). They have been extensively refined to include dynamic theories of noncooperative behavior (Green and Porter 1984;Rotemberg and Saloner 1986); to test for both input and output market power simultaneously (Atkinson and Kerkvliet 1989;Azzam, et al 1990;Schroeter 1988); and at estimating market power in multiple markets (Hyde and Perloff 1998;Raper, Love, and Shumway 2000), thereby permitting the detection of market structures like cooperative bilateral monopoly (Raper, et al 2000). Finally, structural models have also been developed for industries that deviate from the perfectly competitive framework by permitting differentiated products (Allen 1998) and output price uncertainty (Azzam and Schroeter 1991b).…”
Section: Figure 2 the Difficulty In Distinguishing Between Market Powmentioning
This paper concerns an NGO intervention in agricultural commodity markets known as "Fairtrade". Fairtrade pays producers a minimum unit price and provides capacity building support to member cooperative organizations. Fairtrade's organizational capacity support targets those factors believed to reduce the commodity producer's share of returns. Specifically, Fairtrade justifies its intervention in markets like coffee by claiming that market power and a lack of capacity in producer organizations 'marks down' the prices producers receive. As the market share of Fairtrade coffee grows in importance, its intervention in commodity markets is of increasing interest. Using an original data set collected from fieldwork in Costa Rica, this paper assesses the role of Fairtrade in overcoming the market factors it claims limits producer returns. Features of the Costa Rican input market for coffee permit a generalization of the results. The empirical results find that market power is a limiting factor in the Costa Rican market and that Fairtrade does improve the efficiency of cooperatives, thereby increasing the returns to producers. These results do not depend on the minimum price policy of Fairtrade and therefore can inform on its organizational support activities. Finally, the results also suggest that producers selling to vertically integrated, multinational coffee mills face lower producer price 'mark-downs' compared with domestically owned non-cooperative mills. This result contradicts the popular view that the increasing concentration of vertically integrated multinational firms accounts for a decline in producers' share of coffee returns.
“…19 NIEO models have been applied to both monopoly and monopsony (Azzam and Pagoulatos 1990;Azzam and Schroeter 1991a;Durham, et al 1992;Just, et al 1980). They have been extensively refined to include dynamic theories of noncooperative behavior (Green and Porter 1984;Rotemberg and Saloner 1986); to test for both input and output market power simultaneously (Atkinson and Kerkvliet 1989;Azzam, et al 1990;Schroeter 1988); and at estimating market power in multiple markets (Hyde and Perloff 1998;Raper, Love, and Shumway 2000), thereby permitting the detection of market structures like cooperative bilateral monopoly (Raper, et al 2000). Finally, structural models have also been developed for industries that deviate from the perfectly competitive framework by permitting differentiated products (Allen 1998) and output price uncertainty (Azzam and Schroeter 1991b).…”
Section: Figure 2 the Difficulty In Distinguishing Between Market Powmentioning
This paper concerns an NGO intervention in agricultural commodity markets known as "Fairtrade". Fairtrade pays producers a minimum unit price and provides capacity building support to member cooperative organizations. Fairtrade's organizational capacity support targets those factors believed to reduce the commodity producer's share of returns. Specifically, Fairtrade justifies its intervention in markets like coffee by claiming that market power and a lack of capacity in producer organizations 'marks down' the prices producers receive. As the market share of Fairtrade coffee grows in importance, its intervention in commodity markets is of increasing interest. Using an original data set collected from fieldwork in Costa Rica, this paper assesses the role of Fairtrade in overcoming the market factors it claims limits producer returns. Features of the Costa Rican input market for coffee permit a generalization of the results. The empirical results find that market power is a limiting factor in the Costa Rican market and that Fairtrade does improve the efficiency of cooperatives, thereby increasing the returns to producers. These results do not depend on the minimum price policy of Fairtrade and therefore can inform on its organizational support activities. Finally, the results also suggest that producers selling to vertically integrated, multinational coffee mills face lower producer price 'mark-downs' compared with domestically owned non-cooperative mills. This result contradicts the popular view that the increasing concentration of vertically integrated multinational firms accounts for a decline in producers' share of coffee returns.
“…To date, there have been in excess of ten applications of the new methodology to specific industries in the food manufacturing and related sectors, including Just and Chern (1980), tomato harvesting; Lopez (1984), Canadian food processing; Schroeter (1988), beef packing; and Azzam and Pagoulatos (1990), meat packing/live animals. However, very few studies have used this type of analysis with respect to export markets, the exceptions being Buschena and Perloff (1991), coconut oil export market; Perloff (1989, 1993), rice and coffee export markets; and Lopez and You (1993), Haitian coffee exporting.…”
Many studies have been carried out that measure welfare effects of the newly adoped common policy on banana imports by the European Union. All these studies assume that foreign trade in bananas is characterised by perfectly competitive behaviour. However, if foreign trade in bananas is imperfectly competitive, then the welfare predictions about the common banana policy may turn out to be incorrect. It is necessary, therefore, to empirically estimate the degree of market imperfection in the banana market. In this paper, we estimate the degree of market imperfection in the German market for banana imports using a structural econometric model. Based on the bootstrap procedure, we reject the hypothesis that firms in this market behave perfectly competitively, but cannot reject the hypothesis that firms are engaged in Cournot‐Nash behaviour.
“…;Palaskas, 1995;. Related studies in which imperfect market assumptions are invoked have employed other a pproaches such as structural methods (e.g., Azzam and Pagoulatos, 1990;Holloway, 1991;Hyde and Perloff, 1998) and reduced-form techniques (e.g., Panzar and Rose, 1987;Hall, 1988;Zhoa et al, 1996) among others. Barrett (1996) a rgues that the implicit perfectly competitive market assumption is flawed in that even if price differences exactly equal transfer costs, one cannot reasonably presume perfect competition, since this is equally consistent with monopolistic limit pricing, with collusive pricing by a spatial oligopoly (Faminow and Benson, 1990) or with Pareto inferior trade (Newbery and Stiglitz, 1984).…”
The paper uses the Johansen cointegration approach to analyse long-run pricing strategies of pork and chicken retailers in Austria. Long-run retail pricing strategy is found to be dependent on market share and price elasticity of demand for product. A combination of mark-up pricing strategy for pork and a competitive pricing strategy for chicken is considered by retailers to yield maximum profit. Long-run price adjustment reveals linkages to pricing strategy. The versatility of the Johansen cointegration technique as a tool capable of analysing both competitive and imperfect market situations is also revealed. The paper recommends meat policy to be product specific rather than holistic.
KeywordsMarket power, markup pricing, cointegration, long run
JEL Classifications
C32, D43, L11, Q13
CommentsThe research on which this article is based began in 1995 at the Federal Institute of Agricultural Economics, Vienna, with the support of the Austrian Federal Ministry of Agriculture and Forestry. An earlier version of the paper was presented at the 264 th NFJ Seminar, Alnarp, Sweden, 1996. The author is grateful to Karl M. Ortner for the data and to Robert M. Kunst, Karl M. Ortner, Martin Wagner, and seminar participants for useful comments on earlier drafts.
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